Conning Says Automating Commercial Underwriting Not Automatically Profitable

June 12, 2003

The commercial property/casualty industry is on the threshold of an “adapt or perish” decision when it comes to underwriting automation, according to a study from Conning Research & Consulting, Inc.

The study, “Executing Commercial Underwriting Automation – It’s Only a Tool,” finds that companies have spent considerable financial resources and time creating proprietary underwriting solutions in an attempt to differentiate their products, yet ultimately this “tech war” of proprietary front-end solutions will be short lived. A type of SEMCI (single-entry, multiple-company interface) will reportedly become a minimum standard for insurers and independent agents, minimizing the ability of insurers to use front-end data collection differences as an advantage.

“Commercial insurers are spending lots of money trying to automate a system that for years has been dominated by trained underwriting professionals, and those ranks are thinning,” said Michael Weinstein, Director of Research at Conning. “While insurers do not identify a pending underwriter shortage as reason for pursuing automation, we expect that the current workforce of front-line underwriters will have a much smaller number of replacements when they retire or otherwise leave these positions.”

That said, commercial underwriting will reportedly continue to become more and more reliant on automation for the entire policy life-cycle, according to the study. Inevitably, an insurer’s failure to respond to agents rapidly and reliably could soon disqualify it from the standard marketplace.

“Agents are under tremendous pressures to streamline services to their commercial insurance customers,” said Weinstein. “While the insurer has experienced early success with front-end underwriting software to create a competitive advantage, in the future they will really need to focus on the speed and quality of their automated response to standardize the underwriting process.

“The move to SEMCI will force an ‘averaging’ of data requirements,” added Weinstein. “Product differentiation will no longer live at the front-end of the process. Success will be dependent upon information gathering and back-end-supported analyses driving sophisticated pricing models.”

“Executing Commercial Underwriting Automation – It’s Only a Tool” is available from Conning Research & Consulting, Inc. by visiting the company’s Web site at www.conningresearch.com.

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